Europe’s Difficulties Put U.S. Growth at Risk

As European leaders sought last week to reassure global markets, a forum in Washington outlined the fiscal, financial and economic difficulties that Europe continues to face – and the risks those problems present for the United States.

A central theme of the forum, which was presented Thursday by the Committee for Economic Development (CED) and The Concord Coalition, was that the risks of spillover problems from Europe make it all the more important for Washington to act both to support the U.S. economic recovery in the short term and to develop credible plans for comprehensive fiscal reforms in the longer term.

On Thursday Concord also released a paper entitled “Not Just Their Problem: Europe’s Debt Crisis and U.S. Fiscal Policy.”

“These are critical times,” Senate Budget Committee Chairman Kent Conrad said in his keynote speech at the forum, “and we’ve got to be smart about how we get back on track.”

The forum also featured Stephanie Riso, head of the European Union's fiscal policy unit, and a panel of four respected American economists: Douglas Elliott, a fellow with the Brookings Institution; Simon Johnson, an MIT professor; Joseph Minarik, senior vice president and director of research at CED, and Diane Lim Rogers, Concord’s chief economist. Ed Andrews, a former New York Times economics correspondent, served as moderator.

The Concord paper says the biggest fiscal danger from Europe for the United States “comes through the interconnectedness of our economies.” Written by Minarik, Rogers and Andrews, the paper also warns: “A prolonged European economic slump even without defaults or exits from the Euro could hurt longer-term U.S. growth and aggravate what is already an unsustainable trend in the federal budget.”

Other themes discussed at the forum included the synchronization of the global economy in recent years, the prospects for more effective government action in Europe, the need for many governments to eventually lower their borrowing, the enormous risks of irresponsible banking policies, the dangers of excessive austerity during periods of economic weakness, and the ways in which more responsible budgeting in Washington could reassure global markets.